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RANCHO CORDOVA, Calif.—Just a little over a year out of the starting gate, VSP Ventures has assembled a portfolio of leading private practices that serve as the foundation of the new initiative. The goal of VSP Ventures, which was launched by VSP Global in early 2019, is to provide a “care-focused practice transition partner” to ODs across all stages of the business continuum.
Ventures, which was expected to announce a series of acquisitions early this month as Vision Monday went to press, finished 2019 with 12 locations, and has since expanded to about 20 practices under its management. Among the transactions announced in the fall of 2019 were the acquisition of Redhawk Vision Center of Temecula, Calif. (southern California) and Palo Alto, Calif.-based University Optometry. The organization began 2020 with high expectations and a healthy pipeline of acquisition prospects to review, according to VSP Ventures president Steve Baker.
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What Baker and VSP Ventures executives, including chief operating officer Tiffanie Burkhalter, discovered in the months shortly after launch is that the firm’s model appealed to a diverse group of ECPs and not simply doctors transitioning into retirement. “Doctor-owners have two jobs: they are a doctor and they are a CEO,” Baker said. “What they are looking to ‘retire’ is the CEO part of their role, and that sometimes isn’t always connected to age.”
Burkhalter said Ventures quickly realized that its model for buying and supporting practices had a broader appeal than first envisioned. “Right now, we’re fairly [balanced] in terms of our doctor demographics,” she said, noting that participating practices span a range of ages, ethnicities and male-female ODs.
She also noted that the entrepreneurial mindset of independent ODs has been a smooth fit with the Ventures’ business model. The ODs who are now part of Ventures via acquisition have adapted to a partnership approach and haven’t changed how they approach eyecare or the way they seek to solve problems.”
A key factor in Ventures’ appeal is its core principles and message of differentiation. These key points are: VSP Ventures will not resell a practice for profit, nor will it rebrand the practice with a new name or modality. It will, however, invest in aspects of patient care, according to Baker.
“These are the core elements of our program and they resonate with doctors young and old,” he noted. “They are looking for a partnership where they can feel comfortable [and know] that the partner is closely aligned with the same values they have for running the business.”
Ventures also strives to maintain “the operating modality of the practice,” whether it’s medically focused, pediatric-centric or boutique-type location with an emphasis on style, experience and frame assortment. “Who are we to change this?” Baker said. “So, we keep the operating structure in place from a patient-experience standpoint. … It’s what that practice stands for in the community that we seek to preserve and endure.”
Addressing the effect COVID-19 has had on practice valuations for ODs transitioning out of ownership, Baker said he believes there has been an impact on prospective deals both structurally and from a value perspective. “Structurally what I am starting to see more of … might be that more of the purchase price is associated to future performance. And that is perfectly natural,” he said. “But how much that is and how aggressive that is might change from player to player. But some level of association with future performance is piece of this.”
Yet, strong practices in good locations that are operating at a top level will still command premium value, Baker added.
In addition, Burkhalter noted that the VSP Ventures model—which does not include an equity carry—might seem more attractive to prospective sellers in the current uncertain operating environment. “We’ll see how this plays out, but I think this is something that in light of COVID-19 has changed.”
One follow-on factor of the coronavirus pandemic is that it has led ODs to become more focused on operational discipline, Baker said, as they seek to “reboot their practice in a new world.” But he doesn’t see the pandemic as a driving force in moving ODs to seek new practice ownership models.
Instead, VSP Ventures is seeing a diverse group of doctors seeking its partnership “not as much about retirement, although that is an element,” as from a career transition perspective.
Looking ahead to the balance of 2020, Baker said he feels “strong but cautious.” This is to say he’s still seeing strong demand among doctors who are interested in the VSP Ventures program.
Even with ongoing uncertainty, Baker said he expects to see the pace of deals in the eyecare sector to maintain a steady pace going forward. “Our forecast is strong, but we don’t really have a number target. …. The way we run our business is much more of us being responsive to the profession and [whether] we can onboard, engage and thoughtfully operate practices in a way that is not too slow, but not too fast.”